How to Become Self-Employed

Establish a company. Consider starting a company if you have a unique business concept, you've identified a service gap in your community, or you possess a highly sought-after skill and want more control over your time. Your business could be structured as a sole proprietorship, a partnership, a corporation, an S corporation, or a Limited Liability Company (LLC).

• To launch your company, you'll need a business plan, a product or service to offer, and initial capital to get started.

Start a franchise. If you want to own a business but prefer the security of an established model, opening a franchise might be the right choice. The franchiser will provide training, support, and a proven business framework and guidelines.

• Only invest in a franchise if you're prepared to risk losing your entire investment while committing to a multi-year agreement. Owning a franchise means adhering to the terms of your contract for the specified duration, even if you're not seeing profits yet.

Work as an independent contractor. Independent contractors include freelancers, consultants, and others who aren't formal employees. While they have more flexibility in choosing their schedules, they are responsible for their own health insurance and self-employment taxes.

• Highly specialized professionals like accountants and engineers often work as independent contractors, as well as skilled tradespeople like truck drivers, construction workers, and artistic models.

Leverage your existing skills. There are countless ways to start your own business with the resources and expertise you already possess. Consider becoming a dog-walker, junk remover, bicycle delivery rider, freelance writer, babysitter, or web developer. If you're eager to get your business off the ground quickly, take an inventory of your skills and start from there.

• Work for an App. A fast way to begin your independent contractor journey is by joining a rapidly growing platform with minimal hiring requirements. Hosts on Airbnb and drivers for Uber are both examples of independent contractors.

Draft a business plan. If you’re going into business with others or plan to seek investors, you’ll need a formal business plan. This document should outline your company overview, market analysis, business structure, details of your product or service, marketing strategy, financial forecasts, and, if you’re pitching to investors, a funding request.

• Start with the summary, but write it last.
• Even if you’re operating solo, it's still beneficial to outline your goals, expected earnings, and the steps needed to achieve them.

Select a location. If your business requires office space or a storefront, find a suitable place. If you're not ready to commit to a rental or plan on working from home, you can register your residence as a home office. Keep in mind that some types of businesses may have specific requirements depending on the state. Generally, post office boxes are not seen as professional for businesses and may not meet the legal criteria for some models.

• Independent contractors do not need to register a business address.

Fund your business. Assess how much capital you'll need to launch your business. Create a budget that includes costs for permits, licenses, rent, insurance, an initial stock of goods, and any employees you might hire. Look for startup expense calculators to help estimate the costs. To secure funding, you can apply for loans, both private and government-backed grants, or venture capital by offering equity to investors.

• Consider applying for a loan through your bank or the Small Business Administration: [1]
• If your business is low-cost, such as offering lawn-mowing or babysitting services, you may not need any external financing.

Choose a business name. When forming your company, pick a name that reflects the services you offer. Ensure it is unique by checking the Department of State Business Registry for "Corporate Name Availability" to confirm no one else has taken it. Each state has its own registry system, and the department managing it may have different names, often overseen by the state Secretary. Once you're sure your chosen name is available, register it with the appropriate department.

• Register through the Department of State Website or mail in your application as instructed.
• If you form an LLC, you may be required to include the "LLC" abbreviation in your business name.

Register with the Department of Revenue. If you plan to hire employees or sell goods and collect sales tax, you must register with the Department of Revenue. Visit your state's Department of Revenue to complete the process.

• If you're running a solo operation and won't be collecting sales tax, you will instead be responsible for paying self-employment taxes.

Consider establishing a sole proprietorship. If you decide to run an unincorporated business by yourself, you are considered a sole proprietor. As a sole proprietor, you are responsible for paying all business taxes but also keep all the profits generated. A sole proprietorship may be ideal if you prefer to answer only to yourself and are financially able to manage potential setbacks.

• Note that a sole proprietor is not the same as the sole member of a limited liability company (LLC). If you're the only member of an LLC and classify it as a corporation, you are not a sole proprietor.

Form a partnership if you want to collaborate with others. If you're interested in sharing the business's gains, losses, responsibilities, and work with one or more partners, a partnership could be the right fit. Like a sole proprietorship, each partner pays individual taxes. A partnership is a good choice if you want to be your own boss while still being accountable to someone else.

• Employees and partners are distinct roles and are not interchangeable.

Opt for a Limited Liability Company (LLC) over a corporation. An LLC offers many benefits of both sole proprietorships/partnerships and corporations. If you form an LLC, you are referred to as a "member." Most states allow single-member LLCs and partnerships. One major advantage is the protection from personal liability for business debts, similar to that of a corporation.

• Additionally, LLC owners pay personal taxes, avoiding corporate taxation, which is a benefit compared to corporations and partnerships.

Consider incorporating your business. While an LLC is cheaper to run, there are still compelling reasons to form a corporation. For example, you might incorporate if you wish to offer stock options, which can help attract investors and skilled employees. Corporations are taxed at a lower rate than individuals, allowing you to save on taxes for a profitable business by keeping profits inside the corporation. However, profits in a corporation are taxed both at the corporate level and again at the personal level when dividends are distributed. As a result, taxes could be higher than if they were taxed on a pass-through basis.

• If you are an independent contractor and your clients prefer you to be incorporated to avoid listing you as an employee, incorporating may be a good option.

Explore whether you qualify for S corporation status. If you opt to form an S corporation, financial gains, losses, deductions, and credits are passed on to your shareholders, who will be taxed individually. The corporation itself will not face taxation.

• To qualify as an S corporation, your company must be domestic, have no more than 100 shareholders, and only one class of stock. Additional requirements may also apply.

Obtain an EIN. Apply for an Employer Identification Number (EIN) if your business has multiple owners, if you plan to hire employees, or if you prefer to be taxed as a corporation rather than a sole proprietor or independent contractor. You can get your EIN for free through the IRS website.

Pay quarterly estimated taxes. As a self-employed individual, you are required to submit estimated taxes four times a year. Failure to make these payments could result in a penalty. To pay your estimated taxes, complete Form 1040 ES: [2]

• Quarterly tax due dates are April 15th, June 15th, September 15th, and January 15th.
• If you're an independent contractor, you'll receive a 1099-MISC form instead of a W-2 from the companies you work with. Regardless, you'll still need to pay your quarterly estimated taxes.

Keep track of your business expenses. It's crucial to separate your personal and business finances. Open a dedicated business bank account and keep records of all business-related expenses, such as cell phone bills, gas, and website upkeep. If you run your business from home, you might qualify for a home office deduction.

• Deduct any expenses that are considered "ordinary and necessary" for your business, including wages, taxes, and insurance premiums.